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Reliance Industries Limited & Ors. v. The Securities and Exchange Board of India

Civil Appeal · 2026 INSC 585Decided 29 May 2026
C.A. No.-004015 - 2020
Justice J.B. Pardiwala · Justice R. Mahadevan

Background

In 2007, Reliance Industries Limited (RIL) decided to sell 5% of its 75% shareholding in its subsidiary Reliance Petroleum Ltd (RPL): about 22.5 crore shares, after the stock price had quadrupled within 17 months. To hedge the risk of a price fall before the sale, RIL took large positions in RPL's November 2007 futures segment through agreements with twelve entities, and on the settlement day (29.11.2007) also sold 1.95 crore RPL shares in the cash segment in the last ten minutes of trading. SEBI's Whole Time Member found that RIL had earned an illegal gain of about Rs. 447 crore by manipulating RPL's price through this "cornering" of futures positions in violation of securities law, and this finding was upheld 2:1 by the Securities Appellate Tribunal (SAT); RIL appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that SEBI's own method of calculating RIL's share of the futures market was flawed. When open interest across all relevant series and options was correctly counted, RIL's share was 40.10%, not the 93.60% SEBI had used, though this still exceeded prescribed position limits. The Court found that RIL's futures positions were genuine hedges against the real risk of price decline in the much larger 22.5-crore-share cash-segment sale, that there was no requirement for a perfect 1:1 hedge ratio, and that no hedging policy even existed for equity derivatives at the time. On the question of fraud, the Court held that "inducement" is generally a necessary element under the PFUTP Regulations' definition of fraud, and since SEBI could not show RIL had induced others to trade to their detriment, SEBI carried a higher burden to independently prove manipulative intent: a burden it failed to meet, given RIL retained a much larger 70% stake whose value it had no rational incentive to depress. The appeal was therefore partly allowed: the finding of fraud/market manipulation and the resulting disgorgement order (Rs. 250 crore) were set aside, but the separate penalty for violating SEBI's 2001 disclosure/position-limit circular was upheld.

Lesson Learnt

Large trading positions taken to genuinely hedge a real, disclosed business risk are not automatically "market manipulation," even if they exceed regulatory position limits: a securities regulator must independently and cogently prove fraudulent intent or inducement, not merely infer it from the size of a position, before penalties for fraud (as opposed to disclosure violations) can stand.

Official source (sci.gov.in)View Judgment (PDF)

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